ECB to roll out heavy artillery in 2015

After a breathless year of action and now a new political crisis in Greece, the European Central Bank may finally roll out its heavy artillery in 2015 in its battle against deflation, analysts said.

Bank watchers say new elections due in January in debt-mired Greece may prove unsettling for European partners but should remain manageable for the eurozone as a whole.

This will mean the ECB's overriding challenge in the new year will continue to be to prevent the single currency area from sliding into deflation, a dangerous downward spiral of falling prices.

"I see a broad consensus around the table in the governing council that we need to do more," ECB executive board member Benoit Coeure said recently.

So far, the ECB has rolled out a wide range of measures to try and get eurozone inflation back up to the level of 2.0 per cent that it regards as economically healthy.

It has cut its interest rates to new all-time lows, made unprecedented amounts of cheap loans available to banks via its LTRO and TLTRO programs, and embarked on asset purchase programs (ABSs and covered bonds) to pump liquidity into the financial system.

But at 0.3 per cent, area-wide inflation is still alarmingly low and could even fall further as a result of falling oil prices.

So the ECB is currently examining the possibility of so-called "quantitative easing" or "QE".

This is the large-scale purchase of sovereign debt, a policy hitherto pursued by other central banks around the world to kick-start their moribund economies, but which the ECB has so far shied away from.

In Europe, critics of QE -- not least the mighty German central bank or Bundesbank -- see it as a licence to print money to get governments out of debt, which the ECB is strictly forbidden from doing under its statutes.

Nevertheless, most observers believe the question is not "if" but "when" such a program will be on the cards, possibly as early as January 22 or the subsequent meeting on March 5.